Wednesday, June 29, 2022

Regional Rural Banks in India: Their Role in the Financial Sector

What is a regional rural bank?
A regional rural bank is a bank owned and controlled by the banks’ microfinance clients. The clients in the regional rural bank are mainly women who take on the credit risk in making small loans to other members of their communities. The primary reason to set up a rural bank is to fill the financing gap for the new rural entrepreneurs who lack collateral. The development of a rural bank is strongly linked to the region in which it is located, and the length of its history and linkages within the region. A national image of rural India is founded upon the activities and services rendered by its regional rural banks.

History of Regional Rural Banks in India
The Rural Development Department of the Ministry of Rural Development (MORD) came into existence on 1 October 1976. In that year, out of the 22 districts of the five States of Bihar, Madhya Pradesh, Rajasthan, Punjab, and Uttar Pradesh, the Central Government constituted the Dakshin Madhyamik Vikas Bank, for the welfare of rural areas. In 1977, all the districts were brought under the Central Government-funded R.R. BANK. As a result, all the D.M. Bs were known as R.R.B. Bs, i.e. regional rural banks. Under the Rural Financial Inclusion Programme, regional rural banks play a major role in making banking services accessible to the rural population at their doorsteps. In Bihar, the total number of regional rural banks is sixty-three.

Role of a regional rural bank in the financial sector
By Divya Bodke Role of a regional rural bank in the financial sector Financial management of the state-owned bank in the state The NCR region, or the National Capital Region, has five regional rural banks, with each of them accounting for nearly 20 percent of the sector’s credit. In fact, some analysts have argued that the credit crisis in the sector in 2007 was primarily due to the effect of credit siphoned by regional rural banks. Given their unique niche in terms of capital and funding needs of agricultural and allied sectors, regional rural banks have considerable potential for growth and transformation, even though they are rather small in size. Regional rural banks account for a relatively large share in the sector, but their holdings remain small as compared to other banks.

Conclusion
Statistics have not been kind to public sector banks in India. During the financial crisis in 2008, they were the first ones to face the crash. Bank credit declined, leading to big gaps in the repayment and loss of deposits. The trend continued for a few more years before they hit rock bottom during the global financial crisis of 2016. They, especially their private sector counterparts, were the worst hit by the multiple banking crises in the last quarter of a century. In 2017, the total bad loans in the banking sector, according to an estimate, were Rs 10.3 lakh crore, excluding the legacy problem loans. The Centre’s economic stability and financial condition have not improved much over the last three decades.

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